Modern History Sourcebook:
David Ricardo:
The Principles of Political Economy, 1817

An Epitome

On Value: It is according to the division of the whole produce of
the land of any particular farm, between the three classes of landlord, capitalist, and
laborer, that we are to judge of the rise or fall of rent, profit, and wages, and not
according to the value at which that produce may be estimated in a medium which is
confessedly variable. It is not by the absolute quantity of produce obtained by either
class that we can correctly judge of the rate of profit, rent, and wages, but by the
quantity of labor required to obtain that produce. By improvements in machinery and
agriculture, the whole produce may be doubled; but if wages, rent, and profit be also
doubled, these three will bear the same proportions to one another as before, and neither
could be said to have relatively varied. But if wages partook not of the whole of this
increase; if instead of being doubled, were only increased one-half; if rent instead of
being doubled, were only increased three-fourths, and the remaining increase went to
profit, it would, I apprehend be correct for me to say, that rent and wages had risen....

On Rent: Rent is that portion of the produce of the earth which is paid to the
landlord for the use of the original and indestructible powers of the soil. If, of two
adjoining farms of the same extent, and of the same natural fertility, one had all the
conveniences of farming buildings, and, besides, were properly drained and manured, and
advantageously divided by hedges, fences and walls, while the other had none of these
advantages, more remuneration would naturally be paid for the use of one, than for the use
of the other; yet in both cases this remuneration would be called rent. But it is
evident, that a portion only of the money annually to be paid for the improved farm, would
be given for the original and indestructible powers of the soil; the other portion would
be paid for the use of the capital which had been employed in ameliorating the quality of
the land, and in erecting such buildings as were necessary to secure and preserve the
produce.....

If all land had the same properties, if it were unlimited in quantity, and uniform in
quality, no charge could be made for its use, unless where it possessed peculiar
advantages of situation. It is only, then, because land is not unlimited in quantity and
uniform in quality, and because in the progress of population, land of an inferior
quality, or less advantageously situated, is called into cultivation, that rent is ever
paid for the use of it. When in the progress of society, land of the second degree of
fertility is taken into cultivation, rent immediately commences on that of the first
quality, and the amount of that rent will depend on the difference in the quality of these
two portions of land....

The most fertile, and most favorably situated, land will be first cultivated, and the
exchangeable value of its produce will be adjusted in the same manner as the exchangeable
value of all other commodities, by the total quantity of labor necessary in various forms,
from first to last, to produce it, and bring it to market. When land of an inferior
quality is taken into cultivation, the exchangeable value of raw produce will rise,
because more labor is required to produce it. The exchangeable value of all commodities,
whether they be manufactured, or the produce of the mines, or the produce of land, is
always regulated, not by the less quantity of labor that will suffice for their production
under circumstances highly favorable, and exclusively enjoyed by those who have peculiar
facilities of production, but by the greater quantity of labor necessarily bestowed on
their production by those

who have no such facilities, and by those who continue to produce them under the most
unfavorable circumstances.

Thus, in a charitable institution, where the poor are set to work with the funds of
benefactors, the general prices of the commodities, which are the produce of such work,
will not be governed by the peculiar facilities afforded to these workmen, but by the
common, usual, and natural difficulties, which every other manufacturer will have to
encounter. The manufacturer enjoying none of these facilities might indeed be driven
altogether from the market, if the supply afforded by these favored workmen were equal to
all the wants of the community; but if he continued the trade, it would be only on
condition that he should derive from it the usual and general rate of profits on stock;
and that could only happen when his commodity sold for a price proportioned to the
quantity of labor bestowed on its production....

It is true, that on the best land, the same produce would still be obtained with the
same labor as before, but its value would be enhanced in consequence of the diminished
returns obtained by those who employed fresh labor and stock on the less fertile land.
Notwithstanding, then, that the advantages of fertile over inferior lands are in no case
lost, but only transferred from the cultivator, or consumer, to the landlord, yet, since
more labor is required on the inferior lands, and since it is from such land only that we
are enabled to furnish ourselves with the additional supply of raw produce, the
comparative value of that produce will continue permanently above its former level, and
make it exchange for more hats, cloth, shoes, etc. in the production of which no such
additional quantity of labor is required....

We have been hitherto considering the effects of the natural progress of wealth and
population on rent, in a country in which the land is of variously productive powers; and
we have seen, that with every portion of additional capital which it becomes necessary to
employ on the land with a less productive return, rent would rise. It follows from the
same principles, that any circumstances in the society which should make it unnecessary to
employ the same amount of capital on the land, and which should therefore make the portion
last employed more productive, would lower rent. Any great reduction in the capital of a
country, which should materially diminish the funds destined for the maintenance of labor,
would naturally have this effect. Population regulates itself by the funds which are to
employ it, and therefore always increases or diminishes with the increase or diminution of
capital. Every reduction of capital is therefore necessarily followed by a less effective
demand for wheat, by a fall of price, and by diminished cultivation. In the reverse order
to that in which the accumulation of capital raises rent, will the diminution of it lower
rent. Land of a less unproductive quality will be in succession relinquished, the
exchangeable value of produce will fall, and land of a superior quality will be the land
last cultivated, and that which will then pay no rent. The same effects may however be
produced, when the wealth and population of a country are increased, if that increase is
accompanied by such marked improvements in agriculture, as shall have the same effect of
diminishing the necessity of cultivating the poorer lands, or of expending the same amount
of capital on the cultivation of the more fertile portions....

Of Wages: Labor, like all other things which are purchased and sold, and which
may be increased or diminished in quantity, has its natural and its market price. The
natural price of labor is that price which is necessary to enable the laborers, one with
another, to subsist and to perpetuate their race, without either increase or diminution.
The power of the laborer to support himself, and the family which may be necessary to keep
up the number of laborers, does not depend on the quantity of money which he may receive
for wages, but on the quantity of food, necessaries, and conveniences become essential to
him from habit, which that money will purchase. The natural price of labor, therefore,
depends on the price of the food, necessaries, and conveniences required for the support
of the laborer and his family. With a rise in the price of food and necessaries, the
natural price of labor will rise; with the fall in their price, the natural price of labor
will fall.

With the progress of society the natural price of labor has always a tendency to rise,
because one of the principal commodities [food] by which its natural price is regulated,
has a tendency to become dearer, from the greater difficulty of producing it. As, however,
the improvements in agriculture, the discovery of new markets, whence provisions may be
imported, may for a time counteract the tendency to a rise in the price of necessaries,
and may even occasion their natural price to fall, so will the same causes produce the
correspondent effects on the natural price of labor....

It is when the market price of labor exceeds its natural price, that the condition of
the laborer is flourishing and happy, that he has it in his power to command a greater
proportion of the necessaries and enjoyments of life, and therefore to rear a healthy and
numerous family. When, however, by the encouragement which high wages give to the increase
of population, the number of laborers is increased, wages again fall to their natural
price, and indeed from a reaction sometimes fall below it. When the market price of labor
is below its natural price, the condition of the laborers is most wretched: then poverty
deprives them of those comforts which custom renders absolute necessaries. It is only
after their privations have reduced their number, or the demand for labor has increased,
that the market price of labor will rise to its natural price, and that the laborer will
have the moderate comforts which the natural rate of wages will afford. Thus, then, with
every improvement of society, with every increase in its capital, the market wages of
labor will rise; but the permanence of their rise will depend on the question, whether the
natural price of labor has also risen; and this again will depend on the rise in the
natural price of those necessaries on which the wages of labor are expended.

Therefore, in the natural advance of society, the wages of labor will have a tendency
to fall, as far as they are regulated by supply and demand; for the supply of laborers
will continue to increase at the same rate, whilst the demand for them will increase at a
slower rate.... As population increases, these necessaries will be constantly rising in
price, because more labor will be necessary to produce them as less fertile land is
brought under cultivation. If, then, the money wages of labor should fall, whilst every
commodity on which the wages of labor were expended rose, the laborer would be doubly
affected, and would be soon totally deprived of subsistence. Instead, therefore, of the
money wages of labor falling, they would rise; but they would not rise sufficiently to
enable the laborer to purchase as many comforts and necessaries as he did before the rise
in the price of those commodities.... Notwithstanding, then, that the laborer would be
really worse paid, yet this increase in his wages would necessarily diminish the profits
of the manufacturer; for his goods would sell at no higher price, and yet the expense of
producing them would be increased.

On Profits: Supposing grain and manufactured goods always to sell at the same
price, profits would be high or low in proportion as wages were low or high. But suppose
grain to rise in price because more labor is necessary to produce it; that cause will not
raise the price of manufactured goods in the production of which no additional quantity of
labor is required. If, then, wages continued the same, the profits of manufacturers would
remain the same; but if, as is absolutely certain, wages should rise with the rise of
grain, then their profits would necessarily fall.

Thus in every case, agricultural, as well as manufacturing profits, are lowered by a
rise in the price of raw produce, if it be accompanied by a rise of wages. If the farmer
gets no additional value for the grain which remains to him after paying rent, if the
manufacturer gets no additional value for the goods which he manufactures, and if both are
obliged to pay a greater value in wages, can any point be more clearly established than
that profits must fall, with a rise of wages? The farmer then, although he pays no part of
his landlord's rent, that being always regulated by the price of produce, and invariably
falling on the consumers, has however a very decided interest in keeping rent low, or
rather in keeping the natural price of produce low....

The natural tendency of profits then is to fall; for in the progress of society and
wealth, the additional quantity of food required is obtained by the sacrifice of more and
more labor. This tendency, this gravitation as it were of profits, is happily checked at
repeated intervals by the improvements in machinery, connected with the production of
necessaries, as well as by discoveries in the science of agriculture which enable us to
relinquish a portion of labor before required, and therefore to lower the price of the
prime necessary of the laborer. The rise in the price of necessaries and in the wages of
labor is however limited; for as soon as wages should be equal to the whole receipts of
the farmer, there must be an end of accumulation; for no capital can then yield any profit
whatever, and no additional labor can be demanded, and consequently population will have
reached its highest point. Long indeed before this period, the very low rate of profits
will have arrested all accumulation, and almost the whole produce of the country, after
paying the laborers, will be the property of the owners of land and the receivers of
tithes and taxes....There would be no motive for accumulation; for no one accumulates but
with a view to make his accumulation productive, and it is only when so employed that it
operates on profits. The farmer and manufacturer can no more live without profit, than the
laborer without wages. Their motive for accumulation will diminish with every diminution
of profit, and will cease altogether when their profits are so low as not to afford them
an adequate compensation for their trouble, and the risk which they must necessarily
encounter in employing their capital productively....In this case a reaction will take
place, wages will be below their natural level, and will continue so, till the usual
proportion between the supply and demand has been restored. Thus, only the landlord stands
to gain. The laborer is forever condemned to the margin, for with every rise in wages he
has more and more children, and thus competes his wages down to bare subsistence. The
capitalist, who works and saves and invests, and drives forward the economic engine of
society, finds that all his trouble is for naught, as his wage costs are higher and
higher, his profits smaller and smaller, and his rent higher and higher. Thus the
landlords alone, who do naught but collect rent, who contribute nothing to the progress of
society, get wealthier and wealthier, while the rest of society---both capitalists and
laborers---get poorer and poorer.

Scanned and organized by Jerome S. Arkenberg, Cal. State Fullerton. The text has been
modernized by Prof. Arkenberg.

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